Nursing Home Tax Breaks: 5 Deductions for Families

Approximately 1.3 million Americans live in nursing homes, according to the National Center for Health Statistics. When your parent moves into one, taxes probably aren't your first concern. But understanding the potential tax implications could save you thousands. Here are five tax breaks you shouldn't overlook.

1. Long-Term Medical Care Deductions

The costs of qualified long-term care, including nursing home care, are deductible as medical expenses when they, combined with other medical expenses, exceed 7.5% of your adjusted gross income (AGI).

Qualified long-term care services include necessary diagnostic, preventive, therapeutic, and rehabilitative services, plus maintenance or personal-care services for chronically ill individuals provided by licensed healthcare practitioners.

To qualify as chronically ill, a physician must certify that an individual cannot perform at least two activities of daily living (eating, toileting, transferring, bathing, dressing, and continence) for at least 90 days due to functional capacity loss or severe cognitive impairment.

2. Nursing Home Payment Deductions

Amounts paid to nursing homes are deductible as medical expenses if the person stays there primarily for medical rather than custodial care. If medical care isn't the primary reason for the stay, only the portion allocated to actual medical care qualifies as deductible.

However, if the individual is chronically ill, all qualified long-term care services, including maintenance or personal care services, are deductible.

Pro tip: If your parent qualifies as your dependent, you can combine their medical expenses with yours when calculating your medical deduction.

3. Long-Term Care Insurance Premiums

Premiums for qualified long-term care insurance contracts are deductible as medical expenses (subject to limitations) when they, along with other medical expenses, exceed the AGI threshold.

A qualified contract covers only qualified long-term care services, doesn't duplicate Medicare coverage, is guaranteed renewable, and has no cash surrender value.

For 2025, deductible premium limits are:

• Ages 60-70: $4,810
• Over 70: $6,020

4. Home Sale Tax Exclusion

If your parent sells their home, up to $250,000 of the gain may be tax-free ($500,000 if married). Generally, sellers must have owned and used the home for at least two of the five years before the sale.

There's an important exception: if the seller becomes physically or mentally unable to care for themselves during the five-year period, the two-out-of-five-year use test may be waived.

5. Head-of-Household Filing Status

If you're unmarried and your parent meets certain dependency tests, you may qualify for head-of-household filing status. This provides a higher standard deduction and potentially lower tax rates than single filing status.

You might qualify even if the parent you claim as a dependent doesn't live with you.

Navigate Complex Tax Situations with Confidence

These are just some of the tax considerations when your parent moves into a nursing home. Every situation is unique, and the rules can be complex. Don't let valuable deductions slip through the cracks or risk costly mistakes.

Ready to maximize your tax savings and ensure compliance? Contact SD Mayer & Associates today. Our experienced team will review your specific situation and develop a customized strategy to help you take advantage of every available tax break while keeping you compliant with current regulations.